EU Crypto Asset Rules Make Euro Stablecoins Unprofitable

For European investors, bitcoin exchange operators and decentralized finance networks wondering when cryptocurrency regulations will be implemented, it could as early as next year.

That’s Philipp Sandner’s prediction. In an interview with PYMNTS, the economist and head of the Frankfurt School Blockchain Center at Germany’s Frankfurt School of Finance & Management, said at the latest, rules will be in place by early 2024.

“This is very good because we have one regulation coming up for approximately 400 million citizens in the European Union,” Sandner told PYMNTS.  “That’s really massive.”

Europe has had a head start, Sandner said, given rules for tokens, bitcoin, Ethereum, decentralized finance (DeFi) and non-fungible tokens (NFTs) already exist.

Contrast that with the United States, he said, where regulators are still trying to determine which agency should be responsible for digital assets.

But when it comes to stablecoins, defined as digital assets where the price is designed to be linked to a cryptocurrency, fiat money, or to exchange-traded commodities, Sandner said Europe is trailing some countries. In part, he said, it’s because the region lacks a significant number of stablecoins. In addition, he noted Europe lacks an initiative to launch a central bank digital currency (CBDC).

While there are no European government-issued, or so-called public stablecoins, there are a handful of companies offering private stablecoins, including Stasis, Synthetix, Tether, Celo Euro and Parallel.

Still, some Europeans are wondering about stablecoins’ future at a time when the dollar is going digital and China’s yuan is also following that route.

“I think we will see the European Central Bank speed up their development [of a digital currency] because everybody is pushing them to speed this up,” Sandner said. “But it’s a large-scale project.”

One thing is certain, he said, many European countries are delighted that Facebook’s ambitious effort to bring cryptocurrency to the public in 2019 was a failure.

Libra, later called Diem, the Facebook-backed digital currency project, faced strong opposition from regulators and some members of Parliament.

“For politicians, it feels like a victory because they wanted Libra, now Diem, to leave and they succeeded,” Sandner said. “The finance ministers in Germany, France, and elsewhere are very happy that Libra finally has left the continent.”

With Facebook’s proposed digital currency off the table, the net effect, Sandner said, is that stablecoin discussions have slowed in Europe. But not only that, he said, European elected officials have observed that the dollar is not being converted to stablecoins any time soon.

“Libra and Diem, and similar projects have been stigmatized,” he said.  “Therefore, everybody’s happy that such projects have left Europe.”

Another factor making the issuance of a euro stablecoin challenging, he said, is because the rules to do so are extremely complex. Add in the rock-bottom interest rates and there’s no appetite for stablecoins, Sandner added.

“The interest rate of a stablecoin is exactly 0%,” he said. “On the back end of negative interest rates, those companies issuing the stablecoin have to pay [fees] to the European Central Bank … so those companies who would issue stablecoins in Europe, would not be profitable.”

Simply put, from an economic and regulatory perspective, it doesn’t make sense to launch a euro stablecoin because it would be much easier in the U.S., he said.

It hasn’t helped, Sandner said, that there’s the skepticism about stablecoins because people do not understand them.

“To be honest, it’s extremely dynamic,” he said.  “It’s very complex and even I would also have to say, I’m not understanding everything because it’s developing.”

The answer, Sandner said, is for regulators to educate consumers and hire staff who understand the workings of cryptocurrency.

“This would elevate the knowledge,” he said. “And in my mind potentially better decisions could be made.”


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